The Federal National Mortgage Association ("Fannie Mae") has agreed to pay two classes of its shareholders $170 million to settle a class action suit regarding its role in causing massive losses for its investors. The plaintiffs allege that Fannie Mae, a government-sponsored corporation that securitizes mortgages into mortgage-backed securities ("MBS") in order to increase the number of lenders in the mortgage market, did not indicate the extent of its "exposure to subprime loans" as the 2008 financial crisis hit the United States.1 Specifically, the complaint "alleged that the defendants made false and misleading statements concerning the company's internal controls and its exposure to subprime and other risky mortgage loan products."2 The settlement agreement was reached in the United States District Court for the Southern District of New York, with a class of common shareholders set to receive $123.76 million and a class of preferred shareholders to get $46.24 million.
The lead plaintiff for the common stock class is the Massachusetts Pension Reserves Investment Management Board and State Boston Retirement Board, while the preferred stock class is represented by Tennessee Consolidated Retirement System. Although the plaintiffs estimate that the actual damages in the case are worth $3 to $6 billion , they felt the settlement was appropriate because of the intricate and complex nature of the case. Also contributing to the plaintiffs' efforts to settle is the fact that a similar case against The Federal Home Loan Mortgage Corporation ("Freddie Mac") was dismissed less than a year ago by the Second Circuit Court of Appeals. Unlike the plaintiffs here, the Second Circuit found that the Freddie Mac plaintiffs were unable to show that Freddie Mac's actions to conceal its true involvement with subprime loans were the cause of investors' losses.3
When Fannie Mae failed in 2008 following the mortgage crisis, its share price lost over 90% of its value, falling from $7.04 to $.073 per share. The government revived its fallen corporation by allocating $188 billion of bail-out money to the enterprise. Since the crisis, Fannie Mae and the Federal Housing Finance Agency, which regulates the mortgage securitization company, have been involved in numerous lawsuits as a result of the bad mortgages and MBSs being packaged and promoted as safe assets. While the plaintiffs are satisfied with the settlement, Fannie Mae also is eager to resolve the issue with its shareholders from 2006-2008. Fannie Mae believes that the settlement is another positive sign for the corporation as it tries to get back on track after its 2008 collapse and the resulting bail-out.4
The legal team at SFMS has significant experience litigating securities matters. If you have any questions regarding this subject or this posting, please contact James E. Miller (firstname.lastname@example.org) or Michael Ols (email@example.com). We can also be reached toll-free at (866) 540-5505.
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